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Companies You Can Choose From When Starting Your New Business

Starting Your New BusinessIn South Africa, all companies used to be governed by The Companies Act, of 1973. A new legislation came into effect on 1 May 2011 called The Companies Act, of 2008.

This “new” Companies Act provides for two categories of companies you can choose from when starting your new business, namely non-profit and profit companies.

Non-Profit Companies

Non-Profit companies take the place of companies limited by guarantee and section 21 companies. Non-profit companies are characterized by the following:

  • They are incorporated for a “public benefit purpose”
  • Income and property may not be distributed to the incorporators, members, directors or officers, except for reasonable compensation for services rendered by them.
  • The name of a non-profit company will end with NPC
  • A minimum of three persons, called incorporators, must complete and sign a Memorandum of Incorporation (MOI)
  • A minimum of three directors must be appointed
  • All of a non-profit company’s assets and income must be used to advance its stated objectives, as set out in its MOI

Profit Companies

Profit companies are categorized as companies without restrictions on the transferability of their shares and that do not prohibit offers to the public, i.e. larger public companies, and companies that do contain restrictions on the transferability of their shares and that prohibit offers to the public, i.e. smaller private companies. They may take one of the following forms:

1. Personal Liability Companies

A personal liability company is typically used by professionals such as doctors, attorneys and accountants when setting up their professional practices. These company names must end with the word “Incorporated” or its abbreviation “Inc.”.

2. State Owned Companies

State-owned companies were often incorporated under the “old” Companies Act of 1973, but were not recognized in that Act as requiring separate legislative treatment in respect of certain matters to avoid conflict or overlap with other legislation specifically applicable to them, and not to companies. The name of a state-owned company must end with the expression “SOE Ltd”

3. Public Companies

These companies are characterized by the following:

  • Their MOI permits them to offer shares to the public
  • The name of the company must end with the word “Limited” or its abbreviation “Ltd”
  • The incorporators of a public company must consist of at least 1 person. The word “person” includes a juristic person.
  • A public company must have at least three directors

4. Private Companies

  • They are subject to fewer disclosure and transparency requirements.
  • A private company will still be prohibited from offering its shares to the public and the transferability of its shares will be restricted, but it may now have more than 50 shareholders
  • The name of a private company must end with the expression “Proprietary Limited” or its abbreviation “(Pty) Ltd”
  • The board of a private company must comprise at least one director, or any other minimum as stipulated in its MOI. Each incorporator is also a first director of the company
  • In a further effort to create a more flexible regime, the Bill makes exceptions for companies of which:
    • All the shares are owned by related persons, so that there is less need to protect minority shareholders, or
    • All of the shareholders are directors, so that there is less need to seek shareholder approval for certain board actions.
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